The Capital Market Development Fund (CMDF) says the capital market authority's decision to issue put options is welcome by retail investors.
"So far 220,000 shareholders have purchased the contracts, known as Sahamyar, to guarantee at least 20% return on investments by next November," Peyman Hadadi, the CMDF head told reports on Thursday, SENA news agency reported.
The CMDF started offering put options last week for retail investors in the Tehran Stock Exchange and Iran Fara Bourse following the announcement by the government of supportive measures to lift the struggling capital market.
The contracts can be purchased by investors with portfolios up to 1 billion rials, accounting for nearly 96% of the investors. The contracts have a 1-year maturity and guarantee 20% profit.
The measure is largely said to be aimed at persuading retail investors not to sell their assets. About 10 million contracts were to be offered.
According to Amir Mehdi Sabaei, Securities and Exchange Organization's (SEO) deputy for supervisory affairs, nearly 700,000 shareholders are eligible to buy the put options, nearly 450,000 of which are considered as active in the market.
Shareholders with at least 100 million rials worth of transactions are considered active, according to the official.
A put option is a contract giving the owner the right, but not the obligation, to sell–or sell short–a specified amount of an underlying security at a pre-determined price within a specified time frame. Put options are traded on various underlying assets, including stocks, currencies, bonds, commodities and futures.
The SEO board approved the measure earlier this week putting the CMDF in charge of issuing the contracts.
Operating in tandem with the Capital Market Stabilization Fund, the CMDF is a mutual fund tasked with supporting the bourse.
Issuing put options is primarily to reassure investors that their shares hold value and should rethink before selling.
As per procedures, investors buy put option for stocks they own. It is like buying insurance, or hedging against a possible decline, because the put option guarantees a set sell price on that stock.
Put options increase in value if the underlying asset falls in price, volatility of the underlying asset increases and interest rates decline.
However, they lose value when the underlying asset increases in price, volatility of the underlying asset decreases, interest rates rise and expiration nears.
Share market officials earlier announced plans to offer put options for stocks of 15 large cap companies to support shareholders and reassure them about the quality of the stocks.
Some market observers have expressed cautious optimism about the effect of put options on reviving the capital market, including Hamed Satak, the CEO of Aria Novin Brokerage, who recently said that put options could prevent hasty decisions by nervous investors.
